Etihad connections lift Kingfisher, Jet Airways stocks

The Mumbai Mirror reported on Tuesday that Etihad was close to buying a 48% stake in debt-ridden Kingfisher Airlines for a little over Rs.3,000 crore and a formal announcement would be made around 18 December.

Updated: Wed, Dec 12 2012. 12 56 AM IST

Mumbai:Jet Airways (India) Ltd, the country’s second largest airline by passengers carried, and Kingfisher Airlines Ltd, grounded since October with the government suspending its operating licence, both rose Tuesday on the Etihad effect.

Persistent speculation about the Abu Dhabi-based carrier picking up stakes in them led to the stocks rising. Investors in the first company may also have derived encouragement from the first company announcing an extension to its code-share agreement with Etihad Airways, the national airline of the United Arab Emirates.

The Mumbai Mirror reported on Tuesday that Etihad was close to buying a 48% stake in debt-ridden Kingfisher Airlines for a little over Rs.3,000 crore and a formal announcement would be made around 18 December, the birthday of Kingfisher promoter and chairman Vijay Mallya.

Kingfisher said in a release that it was in talks with various investors, including Etihad, but nothing had been finalized.

“No agreement has been reached either with Etihad or any other airline and the matters are merely at negotiation stages,” the airline said in a note to the National Stock Exchange.

Etihad didn’t offer any comment.

The extension of the Jet Airways code-share agreement, effective 10 December, will allow the Indian carrier to offer its passengers connectivity from India to Paris via Abu Dhabi on the Etihad flight to the French capital. The airline’s frequent flyers will earn miles for the entire journey.

Etihad’s spokesperson said it was “pleased to expand our partnership with Jet Airways in this new extension to our code share agreement.”

To be sure, this doesn’t prevent Etihad from picking up a stake in Kingfisher if it wants to but analysts are not convinced about the possibility of the UAE airline buying equity in the troubled Indian carrier.

On 3 December, Mint reported that Jet Airways would shortly approach the Foreign Investment Promotion Board (FIPB) for permission to tweak its ownership pattern to facilitate an equity investment by Etihad Airways.

Etihad, on its part, is keeping all options open. “The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors,” the airline’s spokesperson said by an email. “Etihad Airways has identified equity investments in other airlines as an important evolution of its successful partnership strategy.”

“Such investments will be made where Etihad Airways believes the commercial prospects are strong, where there are like-minded business philosophies, and where such commitment will be welcomed. If or when we do make further investments of this sort, we will announce them in line with regulatory and commercial requirements,” the email added.

The Directorate General of Civil Aviation (DGCA) grounded Kingfisher Airlines on 20 October, pending a revival plan. As of 30 June, it had piled up $1.9 billion losses and owed $2.5 billion to banks and majority shareholders, according to a report by aviation consultant Capa.

The lenders, led by State Bank of India (SBI), want Mallya to infuse capital before lending more to the airline to bail it out. They are expected to meet next week to take stock of the situation.

Meanwhile, the service tax department, which is sparring with Kingfisher over money owed to it by the airline, may seize yet another aircraft belonging to the airline. Last week it ordered the seizure of an aircraft for non-payment of service tax.

“The detention of aircraft is illegal and untenable,” Kingfisher spokesperson Prakash Mirpuri said. “No authority has any right whatsoever to detain aircraft owned by overseas lessors. This will give a very wrong signal to any foreigner who wishes to do business in the aviation industry in India.”

To add to Kingfisher’s woes, Mumbai International Airport Pvt Ltd has asked it to vacate space at the domestic terminal in seven days. The deadline expires by the end of this week. The airport operator is evaluating the next course of action, according to an executive.

Etihad’s fleet of 66 aircraft operates more than 1,300 flights per week, serving an international network of 87 passenger and cargo destinations in 55 countries.